USD weakness continues to boost EUR

Matthew Ryan, CFA Ebury

The flash April PMI figures out of the Euro Area point to another period of stagnant growth in the common bloc. The composite index slipped to a barely expansionary 50.1 this month (from 50.9 in March), in large part due to a sharp drop in services activity.

US tariffs are yet to have a direct impact on growth in the bloc, yet uncertainty surrounding the trade restrictions, even following the 90-day delay to the 20% EU rate, is clearly weighing on sentiment among business owners.

With the Euro Area economy barely keeping its head above the water, it seems certain that the European Central Bank will follow up its April rate cut with additional easing, and another rate reduction in June seems possible.

The euro would ordinarily be trading lower under such circumstances, yet practically all of the strength in EUR/USD at present is a function of dollar weakness, and the key in the near-term remains progress towards possible trade deals.

ECB members Nagel and Lane will be speaking today, but expect almost all action in the euro to be once again driven by developments across the Atlantic.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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